Trading System

Discussion in 'Trading' started by TheNewGuy2010, May 19, 2010.

  1. I am currently working on a new system and would appreciate any constructive comments/opinions you may have to offer.

    Let's say I have back-tested a system for the SPX 500 index and the results are fairly good since 1983 - profitable every year. The issue, however, is that I use the actual index number. I know we can't trade the index directly, but we can do it indirectly with, for example, emini futures (i.e. ES), which has an almost perfect correlation to the index. I also factored in the commission I would be paying for each contract of ES and the results are still fairly profitable. Therefore, I am under the assumption that if I were to take this system live, I would be profitable trading the ES.

    However, I know that live trading is somewhat different from back-testing. ES usually trades at a slight premium/discount to fair value through out the day. If taken into account the premium/discount parity and the b/a spread, I believe it will still be profitable given my direct trading experience with ES. The main concern is that the market may gap up/down too quickly pass my stop limit. However, this is a market risk all non-hedged traders face while trading on any given day.

    I am in the process of taking this system for live testing. Do you good people see any potential issues that will adversely impact the results of my system?